Firmer capital inflows into Asian markets signal the worst may be over for Hong Kong's initial public offering (IPO) market, according to a veteran banker at JP Morgan.
In an interview with the South China Morning Post, Kester Ng, JPMorgan's chairman of equity capital and derivatives markets for Asia-Pacific excluding Japan, said that unlike 2011 and 2012, investors were currently not gripped by any one single global macroeconomic headwind.
He added lingering problems had either been contained or resolved, creating an environment that was more "conducive for equity investments".
On the back of a recovery in risk appetite, Ng has seen strong inflows into Asian equities funds primarily driven by a large number of US-based investors who look to tap market segments most geared to faster global growth.
Ng said the rotation out of bonds into stocks had started, even though the overall flow from bonds into equities remained modest for now.
"We foresee Hong Kong's stock trading and listing markets to be more buoyant this year," said Ng, who pointed out that investment related to urbanisation and changing consumption patterns towards discretionary goods should win investor attention. Luxury goods and high-end car manufacturers were likely to continue to do well. Meanwhile, banks and insurance companies should benefit from a stronger A-share market and better economic conditions at home.
Li Keqiang, the premier-in-waiting, says the country must unleash urbanisation as the next big growth engine. That makes sense to the top economic planners in Beijing as the urbanisation rate is about 50 per cent, compared with a norm of over 80 per cent in developed markets. Under a state-controlled economy, investors often follow the government's top-down approach when selecting which industries or companies will benefit from policies.
In addition, Ng, who focuses on the bank's Greater China equity capital market franchise, said the city's listing activity should benefit from the backlog of IPO filings on the mainland as well as Chinese companies converting B-shares into Hong Kong-listed H-shares.
"The mainland regulators are also relaxing the H-share listing approval process, potentially allowing more listing hopefuls to go public in Hong Kong," Ng said. But he also said the overall listing volume was unlikely to come back to the level seen in 2010 - a record high of HK$449.5 billion.
Following a successful B-to-H share conversion of China International Marine Containers in December, Ng believes more firms will "conduct IPOs with fundraising rather than just doing a listing by introduction, as a way to directly inject liquidity upon listings".
Last year, offerings in Hong Kong raised HK$89.8 billion compared with HK$272.3 billion in 2011, highlighting the weak markets and lack of confidence that issuers and bankers faced.